Our Banks, our Government and the element of Moral Hazard

[John Kalahan]

Our Banks, our Government and the element of Moral Hazard.

Moral Hazard arises when an individual or group do not have to face the full consequences or responsibilities for their actions.

It is that phenomenon of some one being less careful when they know they will suffer only partial loss due to their actions, with some one else stepping in to pick up the pieces. Insurance companies have been acutely aware of the moral hazard problem for centuries.

Most of our Banks Senior executives are still in place, as are the Government and ministers who presided over the destruction of our finances and economy.

If you were merely running a school tuck shop you would be unlikely to refinance the venture following the loss of all capital unless the management management team were replaced, let alone to do so with a bank or a government.

It would be very difficult for our Euro neighbours to demand we replace our management team in government. There might actually be more of a moral hazard for a government being made to implement cuts than allowing them to hand the job to an opposition.

Our top level layers of Bank management is another matter though. Why are so many still in place?

The Moral Hazard problem is starting to repeat itself and can only be expect to continue to do so.

Remember the bailout of ICI and AIB in the early eighties? Remember John Rusnak?

Why do bank shareholders get to keep a single cent in shareholdings , or tier two bondholders get bailed out by the taxpayer going in hock ultimately to the ECB?

No foreign banks will enter the Irish Market until they believe the property crash has hit its bottom.

Would we not be a better candidate for a loan to increase the National debt, if we had made the shareholders and bondholders face their losses as opposed to the taxpayer doing so?

Pretty soon the people of Europe are going to start asking where the moral hazard is for the Irish People if we borrow more than we can pay back from the ECB. If there is no Moral Hazard for the Irish, how might a moral hazard be imposed on a larger nation that got into difficulties in the future?


Is the Fianna Fáil plan to default? If it is to default is the plan to maximise the amount we borrow before we default?

I am convinced that NAMA cannot work and that it can only delay the full consequences of an event that has already happened. Even if NAMA did work it would be at the expense of our compeditiveness in the absence of high compound inflation over a decade that Hans, Gunther, and Claus will not permit.

Why does anyone believe that the architects of the disaster are the best people to manage our recovery?

[goosebump]

Most of our Banks Senior executives are still in place

They aren't. All the CEOs are gone, and the only Chairperson left is Gillian Bowler at Irish Nationwide.

Moreover, the owners of the banks, the shareholders, have lost billions.

as are the Government and ministers who presided over the destruction of our finances and economy.

as they should be, having been elected in 2007. If you have an issue with that, take it up with the electorate.

[John Kalahan]

There is a difference between a Senior Executive and a CEO

They aren't. All the CEOs are gone, and the only Chairperson left is Gillian Bowler at Irish Nationwide.

Moreover, the owners of the banks, the shareholders, have lost billions.



as they should be, having been elected in 2007. If you have an issue with that, take it up with the electorate.

[conservative green]

They aren't. All the CEOs are gone, and the only Chairperson left is Gillian Bowler at Irish Nationwide.

Moreover, the owners of the banks, the shareholders, have lost billions.



as they should be, having been elected in 2007. If you have an issue with that, take it up with the electorate.

Goosebump, can you leave yer boring facts and commonsense out of this, there's a witchhunt on.

[John Kalahan]

Are any of the senior executives who approved lending 25 times the banks working capital still in place, funding 100% loans to buy property in a market with excess supply?

Yes they are.

Is the Minister who presided over much of this still in his postition?

No. We promoted him and gave him the top job.

And the Greens cheered

[EvotingMachine0197]

They aren't. All the CEOs are gone, and the only Chairperson left is Gillian Bowler at Irish Nationwide....

PTSB goosebump ?

Speaking of moral hazard, did anyone see Alan Ahearns analogy ?

RTÉ Business: NAMA decisions driven by pragmatism - Ahearne

He [Alan Ahearne] said that letting banks fail in an attempt to illustrate what he said economists call moral hazard, is like 'a surgeon in A&E refusing to treat a car crash victim as if to say that will stop him speeding'

That's all very well. But to continue his analogy, what appears to have happened next is that after the surgery in A&E, we gave the crash victim a new car and wads of cash and sent him back out on the road.

In Anglo's case, the victim was DOA. We put him on a life support machine, artificial respirator or whatever it's called. But the nrain stem is dead.

[John Kalahan]

There is a world of difference between wiping out the share holders and the bondholders followed by nationalising as opposed to bailing out the bondholders, buying their bad loans and diluting the shareholders.

In both cases the bank can be "saved" but the cost is different.